Moving the gears of the banking business amidst low economic growth.
"Refuses to lend to certain projects doesn't always mean the bank is withdrawing its grip or avoiding risk. It means helping clients avoid investments likely to fail, because when a project goes wrong, both the bank and the client suffer, with clients losing their investment capital, collateral, and the opportunity to recover."
Amidst the challenges of Thailand's low economic growth and high household debt, banking lending has sluggishly grown, leading to accusations that the reason for this lack of lending is that banks tend to "close their umbrellas" when the storm comes.
"Bank Finance" Had a special interview Jongrak Rattanapian, Senior Vice President, Kasikornbank. A person who is considered a long-time employee of Kasikornbank and has extensive experience in the banking business.
Jongrak began working at Kasikornbank in 2545, starting in the treasury department. She rose through the ranks, holding positions as Director of Treasury Management, Senior Director of Treasury Management, Assistant Managing Director, Deputy Managing Director, and finally as Chairman of the Executive Board of Kasikorn Asset Management Company Limited.
He subsequently held positions as Deputy Managing Director, Corporate Banking Division; Deputy Managing Director and Senior Deputy Managing Director, Finance and Control Division; before being appointed President of Kasikornbank in 2566.
The role of banks
Economic gears
Jongrak began by describing the current state of the Thai economy, stating that it faces high uncertainty from several factors, including household debt, competitiveness, inflation, volatility in long-term interest rates, currency fluctuations due to geopolitical issues, and pressure from the global economy. He didn't see a systemic contraction, but rather uneven growth, as some sectors still showed strong expansion, such as hospitals, hotels in certain areas, energy and utilities-related businesses, technology, data centers, and businesses with potential for international expansion.
While some sectors, such as real estate or businesses sensitive to domestic purchasing power, may continue to face pressure, and in a society where wealth is concentrated, high-income customer groups may not be affected by the economic slowdown as much as most people are, we will see some areas of strength existing amidst a more fragile economic base.
The Thai economy faces structural problems such as national competitiveness, labor quality, education, the ability to attract investment linked to domestic supply chains, and the prevention of unfair competition—all issues that the business sector agrees on.
"The Thai economy isn't in a state of collapse, but it's experiencing low growth, a reality we must accept without panicking. I believe Thailand doesn't lack plans or good proposals, but rather the ability to quickly and consistently implement what it knows needs to be done. The question, therefore, isn't whether we know or not, but how to achieve real results."
With extensive experience working in lending, particularly to large corporate clients and those in the supply chain, Jongrak believes that in the current economic climate, large corporate clients are very important. They are strong and serve as a link to SMEs and retail customers. Thai large businesses have strong capital and the ability to differentiate themselves, creating continued growth opportunities, especially through expansion into overseas markets. This is a key factor driving the continued growth of this lending segment for Kasikornbank.
While SMEs need exceptional skills to find growth opportunities in an economy with low growth rates of only 1-2%, they also face supply chain disruptions from the influx of foreign capital, such as goods from China. Even though these companies have manufacturing plants in Thailand, they bring their entire supply chain from China, significantly impacting the competitiveness of Thai SMEs.
"The proportion of large corporate loans at Kasikornbank has increased significantly over the past seven years, rising from 30% to around 40-41%, while the proportion of SME loans has decreased to approximately 24%."
The credit mechanism is still working.
But they repay more debt than they borrow.
Jongrak also stated that the current picture in the credit system is that banks still consider granting loans when customers request credit lines, but actual disbursement has decreased because entrepreneurs are unsure whether new investments will generate a return that justifies the costs. In many cases, customers are choosing to repay debts faster or retain credit lines for future use instead of immediately using the funds to expand their businesses. For this reason, outstanding loan balances are not growing, even though the bank's approval and new disbursement mechanisms are still functioning continuously.
This is one of the issues that needs to be understood by society, because of the belief that... 'The bank refuses to grant the loan.' The reality is that banks are businesses that receive deposits and then must find ways to lend them out. If they incur costs but don't lend any money, it's not a sustainable banking business model.
Therefore, the problem of stagnant loan growth in recent times is not because banks have stopped lending, but because customers are not utilizing their credit lines as they used to. Banks approve credit lines, but that doesn't necessarily mean outstanding balances will be generated. As long as businesses remain uncertain about their investment plans, or if they don't have sufficient cash flow, they choose to repay debt first to save on interest costs. One factor contributing to this situation is the low growth of the Thai economy.
"Banks that receive deposits but don't lend out cannot survive. Banks are created to grow with the country's economy, so there's no reason why banks wouldn't want to lend. The problem isn't that banks don't want to lend, but that customers aren't using the loans, and some are repaying them quickly because they're unsure what to do with the money for expansion."
Jongrak also stated that, from a profit perspective, while large businesses continue to grow, banks cannot rely solely on large corporate clients. Banks' income comes from both loan interest and fee income, therefore, a balanced mix of diverse customer bases is necessary.
Therefore, as the economic and business landscape remains unchanged, the internal operating models of banks themselves must adapt, focusing more on understanding customer segments, whether they are large corporations, SMEs, or individual customers.
The key challenge for the bank isn't simply having a full range of products and launching them all in the same way, but rather having people who can act as voices for the customers, bringing their input back into the organization. These voices should question why certain products and services don't truly meet customer needs, because different customer segments require different levels of accuracy, convenience, speed, and care.
Banks must do more than just provide funding; they must also assess the feasibility of businesses in collaboration with their clients. Banks are organizations with vast amounts of data, a broader industry perspective, and the ability to compare businesses within the same sector. Therefore, they should use that data as a guiding tool for businesses, not merely as a risk screening tool.
"Refuses to lend to certain projects doesn't always mean the bank is withdrawing its grip or avoiding risk. It means helping clients avoid investments likely to fail, because when a project goes wrong, both the bank and the client suffer, with clients losing their investment capital, collateral, and the opportunity to recover."
Furthermore, the image of banks having excess liquidity and depositing money with the central bank to earn interest without lending is, according to Jongrak, a misconception. He explained that placing a portion of bank funds in liquid assets with the central bank is a matter of liquidity management and regulation, and is not an attractive source of profit compared to quality lending or other investments.
"Banks have no incentive to take in deposit costs and then invest them in low-yielding assets. They will inevitably choose the path that allows for better lending and a more reasonable return, because the nature of the banking business is to grow through quality lending, not to avoid risk to the point of neglecting its core function."
Jongrak further stated that the banking business needs to adapt and diversify its revenue streams. While interest income remains a significant component, it is insufficient in a world where consumer behavior is changing and traditional transaction fees are under pressure. This has led to a greater role for revenue from wealth management businesses, investment advisory services, wealth management products, and advisory services.
This aligns with Kasikornbank's 2569 business plan, which focuses on growing fee income from Wealth Management business alongside other non-interest income. The bank's strategy for the Wealth Management segment is to become a Trusted Advisor, meaning positioning itself as a reliable consultant for clients, based on the principle of growing alongside their wealth. If clients' wealth grows, the bank will grow as well.
"Thailand is entering an aging society, and this group often comes with accumulated wealth, making the domestic wealth management market large and highly promising for growth."
By definition, wealth management encompasses all levels, but the approach to care varies depending on the value of assets under management and the service channels. One crucial channel is the bank's K PLUS app, used by people of all income levels, serving as a gateway to the bank's diverse products and services. Its large user base and perceived convenience, speed, and trustworthiness help the bank maintain relationships with clients ranging from retail customers to those with the potential to become future wealth clients.
"Business plan for the year" In 2569, Kasikornbank focuses on the growth of fee income from its Wealth Management business, alongside increased non-interest income. The bank's strategy for its Wealth Management segment is to become a Trusted Advisor, positioning itself as a reliable consultant for clients, based on the principle of growing together with their wealth.
Willing to take risks.
Inside – Exterior
Jongrak mentioned the risks to watch in the second half of 2569, noting that the first is the volatility of interest rates and currencies. He specifically mentioned the need to monitor international yield curves, particularly those in the US, which have reached multi-year highs, reflecting persistent inflation. This volatility directly impacts financing costs and the Thai baht, as well as currencies in the Asian region.
"The future de-dollarization of the US dollar is a major trend to watch, as it will affect the adjustment of various countries' reserve portfolios and the volatility of the global financial system."
Another risk is the geopolitical situation and oil prices. We must monitor wars and conflicts in the Middle East, which are keeping oil prices high, having risen from around $105-110 per barrel previously. This is a driving factor in global inflation and could cause Thailand's inflation rate to rise to 3%.
Furthermore, Thailand faces structural risk factors such as low economic growth, which limits the expansion of bank credit. There are also long-standing structural problems, including issues with the quality of education and the aging population, which affect the country's long-term competitiveness. The impact of upcoming government measures to stimulate the economy also needs to be monitored.
Another risk lies in asset quality and data reliability. Past fraud incidents in the business sector reflect the risks in credit analysis. If financial data does not reflect reality, banks must be more cautious in identifying and raising suspicions about the figures.
Even with the use of AI, in approving large loan applications, AI still has limitations in analyzing business sensitivities or industry consistency. Therefore, expert human resources are still necessary for decision-making.
Follow and read other columns in the Bank Finance Journal, June 2569, Issue 530 in digital format: https://goo.gl/U6OnIi
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